LKP Securities
RBL Bank (Buy)
Target: ₹273
CMP: ₹215
RBL Bank is re-accelerating its growth phase with consistent asset quality by de-risking the credit card business (20.8 per cent of loan book) and better quality corporate book (41.3 per cent of book).
The bank’s Q4-FY21 results indicated a steady normalisation in asset quality. Peak of GNPA (4.3 per cent) is likely to be formed at the end of FY21. We can expect better asset quality in coming periods and estimate the GNPA ratio to narrow down to 3.1 per cent in FY23.
The wholesale book clean -up is behind us. We estimate ROA/ROE of 1 per cent/8 per cent in FY23 on the back of 8 per cent loan growth in FY23. We assess the NIMs to remain at a range of 4.1 per cent in FY22-24 driven by higher yielding unsecured book. The improvement is CASA deposits (32 per cent in FY21) would further help the margin improvement. Moreover, the covid provisioning (₹664 crore) stood 170 bps of net advances; which is likely to be adequate combating the restructuring book.
RBL Bank holds a healthy positioning as demonstrated by: Extension of CEO Vishwavir Ahuja’s tenure; adequate covid provisioning; improved PCR; and healthy liquidity position with LCR of 156 per cent. Furthermore, a healthy capital position (CET 1: 17.1 per cent) post fund raise would provide cushion. We believe the current valuation at a 5-year low of 0.9x FY21 Adj. BVPS - provides adequate downside protection. We value the bank at 1.2x FY23E Adj. BVPS and recommend Buy with a revised target price of ₹273.